Messages Are Still Mixed From the Currency and Bond Markets

Can we really be in a bull market condition without the participation and confirmation of the biggest markets in the world?

Euro currency breakouts are giving the bulls some additional tailwinds. However, the other key currency crosses as well as the Treasury and high-yield bond markets are still stuck in "nonconfirmation" land. I need to see confirmation from the "stuff-related" currencies, Treasuries, and junk bonds before I can jump in with both feet on the bullish side of the pool.

MESSAGE OF THE MARKETS

CURRENCIES

The euro / US dollar is on the verge of an upside breakout.

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The euro / US dollar currency cross (EURUSD) is on the verge of breaking out above the 100% Fibonacci price projection line resistance. A close above 1.32801 will confirm for me that this is more than just a correction in the euro. If that resistance holds, however, the "abc" correction theory is still viable.

Today's close, and more importantly, tomorrow's close, will be critical to monitor. A breakout would likely mean a move up to 1.34127 and possibly 1.34947. Right now (as of 1:35 p.m.), it looks like we'll get the breakout on the daily chart.

Now the EURJPY is running up against the 261.8% Fibonacci price projection line – which is the resistance line for an extreme move like we've seen. The actual price level at that resistance line is 107.036.

The Aussie dollar / Japanese yen is still faced with resistance just ahead.

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Away from the euro-based currencies, the picture isn't quite as bullish – although it could be given a little more time.

The Aussie dollar / Japanese yen cross (AUDJPY) is faced with the key 100% Fibonacci line resistance at 86.716. That line should not be violated if the AUDJPY is merely in a correction higher. Any close above that level will provide yet another win for the risk bulls out there.

The next key resistance level for AUDJPY should 86.716 be taken out will be all the way up at 91.263. A failure to break and close above 86.716 would, for me, be an important nonconfirmation of the recent rally in stocks. Combine that with the S&P 500's inability (thus far) to conquer 1370, and the bears would certainly get their second wind.

The Canadian dollar / Japanese yen cross is also facing key resistance.

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The chart of the Canadian dollar / Japanese yen (CADJPY) is sporting an almost identical pattern as the AUDJPY. The 100% Fibonacci line resistance at 80.974 is the line in the sand for the bears here. Any break and close above that level will mean this upside is part of a primary wave higher and not just a corrective move higher.

The nearest important upside target should CADJPY break above 80.974 will be 83.836 (the 138.2% Fibonacci price projection line).

So, the message from currency land is more hopeful than in recent reports due to the bullish action in the euro. With all of the influences there, however, I will need to see confirming breakouts from the Aussie and Canadian dollars for me to be truly convinced of the sustainability of the rally in risk assets.

BONDS

The 10-Year Treasury Note Yield has remained under key resistance.

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The yield on the 10-Year US T-Note ($TNX.X) still hasn't moved decisively in either direction. My guidance from last week remains unchanged.

A break and close above 20.80 will, for me, mean yields are going higher and risk assets will likely be moving higher as well (as money moves out of bonds).

A failure to break out to the upside and/or a move below 1.8% on the downside will be a win for the risk bears out there and will bring my bearish targets at 1.443% and 1.321% into play.

It seems like the big bond players out there are less than convinced about the supposed bullish implications of the "resolution" of the problems in Europe.

High-yield bonds are breaking above short-term resistance.

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The high-yield bond market – represented above by the iShares High Yield Bond ETF (JNK) has finally kicked into high gear recently.

The JNK is breaking out above the 39.73 horizontal line resistance formed by multiple short-term tops (see yellow boxes).

The real test for JNK will be the 100% Fibonacci price projection for what may be wave c of an abc correction at 40.35. Like the Aussie and Canadian currency charts above, a hold of resistance at the 100% Fibonacci line will provide the risk bears with some additional hope.

On the other hand, any close above 40.35 will mean this move is primary wave higher and not a correction and will open up more room to the upside (with 41.94 and 42.91 being the next important resistance levels).

I am now awaiting bullish confirmation from the Aussie and Canadian currencies as well as from Treasuries and high-yield bonds. If I get those confirmation breakouts, I will gladly scream bullishly from the mountain tops. Until then, the wise move is to keep the enthusiasm for the rally in risk assets in check.

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